Equitable Incentive Compensation Decisions During Turbulent Times
Historical norms for incentive plan decision making will be all but impossible to apply in 2020 and possibly beyond.
The majority of calendar year companies set short- and long-term incentive metrics and goals and made stock grants before the impact of the COVID-19 pandemic hit the United States. Fiscal year companies are either further into their fiscal years or signed off on goals after the initial impact was known.
Whether your company’s performance benefited from or collapsed under the new social and economic normal, companies’ crystal balls on what potential performance for remainder of the year are cloudy.
There are many questions around what we should be paying for this year:
- The financial and shareholder return targets agreed to?
- What about shifting short-term priorities?
- Do we consider stakeholders other than shareholders?
- How much pay is fair for the absolute performance delivered and do we adjust for things beyond management’s control?
- What will shareholders/ shareholders advisors think?
- How do we help our compensation committee exercise judgement in a thoughtful way through a process they will feel good about?
The advice early in the pandemic was to wait for more certainty in the economy and lower share price volatility. Now it is time to begin the decision-making process.
This session provides:
- A framework for incentive decision making
- A staged process for leaders and the compensation committee
- Potential solutions that fit different company scenarios
The conversation will start with where your company is, how the pandemic has changed potential performance and short-and long-term prospects.
The decision-making framework will address:
- Key principles for 2020 incentive pay
- Criteria for setting the order of magnitude of payouts (% of Target)
The staged process will outline agendas for 3-4 meetings.
Potential solutions will be categorized by what works best in the ranges of situations companies will be in.